Thoughts on Law Firm Management

One of the questions that I’ve run into a lot lately has been, “what is the true cost of my staff?” Also as a follow up the question I always ask is “what should you really be paying for with that staff member?”

To answer the first question, I’ll begin by simply looking at dollars out of pocket. As a general rule of thumb, you should add a minimum of 10% on top of a full-time employees pay to let you know what you’re truly paying once you add in payroll taxes, unemployment, worker’s comp, benefits, etc. Depending on how generous your benefits package might be, that number can easily work its way up to the 15% range.

So if you have a full time paralegal and you’re paying him or her $45,000/year, you’re really looking at the $50,000 – $52,000 as the true out of pocket cost for that employee.

It’s important to know the true cost of an employee; however it’s as important to know what that money should be getting you. Like anything else, cheaper can be better, but it’s not always better. For example, when evaluating a paralegal you should look at whether he and she can perform the duties reasonably expected from that position and also look at what type of attorney/support staff ratio that money is getting you.

Have an idea of what type of capacity that person should have. A paralegal that costs $55,000 and has the efficiency to support 3 attorneys is a much better value than one that costs $40,000 and can only handle the work load of 1.

A law firm, like any other business can find economies of scale and optimum efficiencies. It’s important to learn what these are and work to make your firm a size that can properly use those efficiencies.

Most every law has the desire to grow and become larger. Traditionally as a firm grows it requires more staff to handle the additional tasks that need to be done. As the owner of a law firm an interesting thing can happen, you become less of an attorney and more of a manager.

Even though theoretically more support staff should mean more time for you as an attorney to practice law, often times it can mean just the opposite. You become bogged down in administrative and human resources issues and are required to wear the manager hat more and more. As a result your production begins to slow.

So what’s the solution?

Traditionally this has been the point at which a firm will hire a COO and just say here you handle them all. This certainly can be a viable option, however a COO does not reduce staff and it can easily add 6 digits to your firm’s overhead.

There is another option. Outsourcing. You can cut down on staff and overhead by outsourcing the administrative functions of your firm. Let someone else worry about setting up clients, sending out invoices, paying bills, and generating payroll. And don’t break the bank and give yourself another staff member to manage in the process.

I know that this is a fairly new option for law firms, but it’s available and it works. Today’s technology allows seamless connection your software from virtually anywhere. I can print off a check in your office while sitting 300 miles away without any difficulty.

It takes some getting used to, however I’m sure that more time, more money, and less hassles will make that a whole lot easier to swallow.

Regardless of profession you can identify common traits that link all the most successful leaders. No matter what your personal management style, if you’re a good leader, you share habits with other successful leaders and managers. Be willing to take a look at yourself and determine where your areas are for self-improvement. Again, as an attorney investing in yourself is one of the most important things you can do.

Be self-disciplined — The best managers lead not only through instruction, but also by example. You set the standard as the role model and your staff follows your lead. Don’t be a hypocrite and tell others to do as you say, not as you do. Exercise self-discipline and set a good example for your team.

Know what you can and can’t achieve — One of the most important but often overlooked traits of good managers is knowing your limits. Good managers realize they don’t know everything and delegate accordingly. Don’t be afraid to ask for help if you need it, there are alternatives to trying to do it all yourself.

Value your employees — Employees who feel that their contributions are noticed and appreciated are much more likely to feel satisfied and rewarded by their work. As a manager, you need to recognize how your actions and policies affect your employees and make sure that they feel valued at all times.

Be decisive — Effective managers aren’t wafflers. They make decisions and stick with them. And if these decisions turn out to be wrong in the future, they admit their mistakes and make another decision on how to get things back on track. Good leaders are sure of themselves, even to the point of faking it when they have to.

Communicate clearly — Poor communication is the number one problem most people face at work. Good managers don’t leave things open to misinterpretation and confusion. They communicate clearly and effectively the first time, making sure everyone understands their roles and expectations.

Be responsive — A good manager is available for his or her team. He or she will listen to employees’ problems and respond in a manner that helps them solve the issue. Don’t ignore demands or requests from your team; address them immediately. That way you’re sure to get better results.

Welcome criticism — No one is perfect. No matter how good you may be, there is always room for improvement, and this is especially true of managers. Don’t be afraid to seek constructive criticism from your team. It will help make you a better overall leader.

Be enthusiastic — If you’re not looking forward to coming into work each morning, how can you expect your employees to be? Find the positives in your workplace and keep enthusiasm and motivation high. Your team is sure to follow.

Everyone wants to see their firm grow in value. This is the reason that anyone owns or starts a law practice. I understand that people have other reasons for running a law firm, but we would all be lying if making money and growing in value wasn’t right near the top of the list.

One of the best ways to add value is to invest in something that you can trust and influence. That something is you. As an attorney the product or service that you are selling is yourself. People are buying your knowledge, experience, ability, and trust. By investing in yourself you provide value to your clients, your practice and yourself. Many people associate value with something outside of themselves, when in fact they are the rate limiting factor and by investing in anything other than themselves is counterproductive.

Consider how you are using your time, determine which pieces are indeed value generating and cut out or off load the rest to someone else.

Ways you can add value by investing in yourself is to step outside your area of expertise, learning something new, develop a new skill, be intentional about being intuitive….start with small investments so you can experience success. Keep challenging yourself to take it up a notch and every time you do your value will increase along with your value to your firm and your value to your clients.

What scenario provides the greatest potential – a unit based business or a business based on hourly compensation? When it comes to potential the answer is a unit based business. The more units you can efficiently and effectively process the more revenue you can potentially generate. The problem with an hourly based business is that there are only so many hours in the day. This means your income potential is limited to your hourly wage. So as an attorney you have to be very diligent on how you spend your time. When working for a client you can of course charge for your time, but for those hours of the day when you are not working for a client, what are you doing? Are you investing your down time in activities that will result in billable time? Or are you watching time (revenue) slip away on things like administrative work, interruptions, technology issues, staffing issues, etc.

An idea would be to create a list of things you can do during your down time that will help you increase your productivity/revenue in the long run. Things on your list might include, sending out Linkedin invitations, asking attorneys within your firm if they need assistance on a matter, writing personal notes or letters to your loyal clients, visiting clients, participate in community organizations, write for the firms newsletter, etc. Use your down time as time to invest in your practice and soon you’ll be as busy as you want to be.

Through regularly working with and interacting with lawyers, I have begun to see two fairly distinct groups emerge in terms of how they manage their practices. A common theme seems to be that they either love to focus on one side of the ledger or the other. The two sides I’m talking about here are revenues and expenses.

Those that fall into the first group have fairly good revenues for the size of the firm; however they have no handle on the firm expenses.

We recently worked with a firm that was a lot like this. It was a solo practice and the annual revenues hovered right around $240,000. This isn’t anything exceptional, however that should be enough to keep the firm running and provide a reasonable standard of living for the attorney. The issue was that the attorney refused to anything on his own. He had staff for everything, regardless of whether they actually saved time or made the firm run efficiently. This ended up putting the attorney in a position where all the revenue was used as soon as it came in, if not before.

The scale gets tilted too much in this direction and the owner loses all the freedom and work/life balance that should come with a solo or small practice. Most people like the idea of staff working for them and doing all the things that they don’t want. The caution here is that you can quickly become handcuffed by rising expenses and end up working for your staff rather than yourself.

The other side of the coin then is those that are focused solely on running a lean / low cost operation. If I were forced to choose one extreme or the other, I would lean this way, however this side also has it’s disadvantages.

This attorney is the one that insists on doing everything herself because she doesn’t trust that anyone else can do it as efficiently or as well as her. She is proud of the fact that her only expenses to run the firm are her time. However, there also lies the problem. This type of attorney ends up spending significant amounts of time on administrative rather than billable matters. Even if she is efficient in those areas she is still missing out on the opportunity to increase revenues.

This group regularly loses sight of the fact that in some cases an increase in expenses is actually the best thing for the firm because it can allow for a greater increase in revenues.

So it’s obviously not a surprise or anything too complex, however the key lies in finding the right balance between handing off tasks and keeping expenses low.

So much is said about communication, both within the firm and with current or potential clients. But what does effective communication really mean? I believe that to truly evaluate effective communication you need to look at the desired end result – Trust. Trust is the firm belief in the reliability, truth or strength of someone or something.

Isn’t trust what all attorneys strive for? To be trustworthy means you are a person of character and integrity; you do what you say and say what you do. So how does one build trust with their clients, partners, staff, community, and etc.? I simply recommend starting with a list.

Create a list of all the ways you communicate with various stakeholders, here’s an example:

– Meetings

– Telephone conversations

– One on one conversations

– Letters

– Invoices

– Voicemail

– Email

– Social media; facebook, websites, twitter….

– Etc.

After you’ve created your list determine how you can be more effective communicating with each stakeholder, for example:

– At the conclusion of each meeting take the time to paraphrase back to participants accountabilities and timelines; make sure you do your best to deliver exceptional work and exceed your timelines.

– Spend more time listening and asking questions while engaged in conversations. Find opportunities to follow up.

– Letters or notes are great ways to show empathy

– Take the time to explain your invoice, lack of detail can be misinterpreted as if you are hiding something. A phone call explaining the invoice can go a long way in building trust.

– How quickly do you respond to your voicemails and emails, what if you created a minimum standard where everyone that contacted you via voicemail or email could expect a response from you within specific timeframe? This way you’ve established an expectation, and hopefully it’s an expectation you can consistently exceed.

– If someone were to google your name what would they find? Is it a true representation of who you are?

Effective communication builds trust and trust is developed over time by listening, following up, establishing expectations (and then trying to exceed those expectations), empathy, timeliness, honesty and humility. Take some time today and make a list of individuals you trust….are they effective communicators, my bet is they are.